ANALYSIS | Private rail operators in SA need these changes to Transnet policy

In a move geared towards transforming the rail sector, Transnet issued its draft Network Statement for public comment in March, outlining the means for privatisation of its rail network.

This statement gives effect to the rail reform set out in the National Rail Policy (adopted by Cabinet in 2022), the Freight Logistics Roadmap, and the Private Sector Participation Framework. However, several elements are contentious, including the proposed minimum access fee to the rail network, proposed security measures, and the means of allocation of capacity. 

The statement delineates the requirements and application process for private train operator companies (TOCs) to access Transnet’s rail network, overseen by Transnet’s Infrastructure Manager (IM).

It also sets out the functions and powers of the IM.

The application process is detailed, including minimum requirements such as completing self-screening checklists, conducting site visits and providing undertakings to participate in the IM’s “Community and Social Development Plans”, “Supplier Development Plans” and “Skills Development Plans”.

Successful TOCs must submit a risk analysis of their intended operations and sign the TOC-IM Interface Agreement. TOCs must have a railway safety regulator rail safety permit and a licence to operate before being allowed access to the network.

The statement provides that TOCs shall be granted, under equitable, non-discriminatory and transparent conditions, the right to access railway infrastructure for transport services.

This includes access to infrastructure connecting maritime ports, inland terminals and other service facilities offered by the IM. Capacity is stated to be allocated by the IM in a “fair, transparent and equitable manner” and by fulfilling objectives such as maximising Transnet’s rail network utilisation; enabling growth objectives of critical strategic economic sectors; migrating traffic from road to rail; achieving full cost recovery; and injecting infrastructure investment through access tariffs.

Unfortunately, no further context or detail is given to these equity principles.

Additionally, the IM has the power to temporarily withdraw infrastructure capacity or part thereof where they are out of use due to technical malfunctions, accidents or damage. The IM will offer the TOCs alternative train paths “where possible” and must compensate TOCs for any damage arising from such disruptions (unless otherwise agreed to in the Rail Access Agreement). The IM is also entitled to take away capacity not used at 75% over a pre-defined three-month period and to allocate such capacity to the next ranked TOC based on the outcome of the evaluation of applications for capacity.

Proposed minimum access fee

The proposed minimum access fee from Transnet, set at a rate of 19.79 cents/gross ton per kilometre, has drawn significant attention in the rail industry. This fee is based on gross weight, which includes the weight of the train; rather than net weight, consequently increasing transport costs and costs across the supply chain.

The IM is said to set tariffs for three to five years, with provisions for minor annual reviews (in limited parameters, for inflation, interest rates and energy prices) and major reviews every five years.

Interestingly, in terms of Transnet’s Rail Access Tariff Methodology 2024/25 Discussion Paper, released with the statement, it is stated that Transnet’s Freight Rail Operator declared this minimum access fee to be unaffordable, which inherently contradicts Transnet’s position in the statement. The discussion paper also states that the IM may consider phasing in the tariff over a five-year period, though funding may be required to ensure that the IM has adequate funds for its short-term requirements.

Given this incongruence, there is a possibility that Transnet may revise the minimum access fee.

Security issues

Transnet has also attempted to address the widespread theft and vandalism across the rail network, and notably has included “acts of theft” as an event of force majeure.

This effectively allows any train to be cancelled due to “acts of theft” and Transnet’s (and the IM’s) obligations to be suspended – a concerning provision given the prevalence of theft across the network.

Additionally, the statement provides that matters or circumstances beyond the IM’s control may force the IM to make deviation management intervention decisions, including cancellations, staging, replanning, rescheduling or rerouting of trains without input from all stakeholders.

In respect of the security issues that have been a burden for the rail industry for years, the statement only provides a standard proviso to address this without adequate detail, namely that “security service providers will enforce a mix of physical guarding, armed response teams, and interventions to address organised crime groupings behind the illicit copper market”.

Additionally, each TOC must have its own security plan that covers cargo.

These provisions do not adequately address the issues faced by Transnet in respect of security, which has created immense costs for Transnet, operational delays in the network and the loss of thousands of kilometres of its railway tracks. These issues have also resulted in the network being unreliable for the rail industry (and the economy at large), a decline in freight volumes in the network and weakening of the economy due to disrupted shipments, among other things.

These provisions will need to be detailed by Transnet in order to give effect to the National Rail Policy and provide adequate comfort to industry stakeholders as to the reliability of the network for future private use.

More work needed

Ultimately, the statement represents a crucial step forward for the rail industry (and commodity providers reliant on rail services) which has been monopolised by Transnet, now opening the door to private investment. This also presents a means for Transnet to reduce its vast debt, increase the freight volumes in the network, which have been at a decline due to Transnet’s underperformance, and ultimately improve the economy.

However, substantial consultations and amendments are needed to appease industry stakeholders before privatisation of the rail sector can be effectively implemented, particularly to account for the negatively received minimum access fee (which seems to be recognised as “unaffordable” by Transnet itself), as well as several challenges identified and undertakings made in the National Rail Policy, such as competitive price setting, and to adequately address the security issues (including theft and vandalism) in the network.

Interested parties should submit written comments on the statement by 20 May 2024.

Vivien Chaplin is a director in Cliffe Dekker Hofmeyr’s corporate and commercial practice and head of its mining and minerals sector. Gaby Wesson is an associate in Cliffe Dekker Hofmeyr’s corporate and commercial practice.

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